How lawmaker ties helped shape Fed chairman's COVID-19 response

Federal Reserve Chairman Jerome Powell's deep ties with lawmakers are paying off as the central bank deploys trillions of dollars in financial support for the economy with the blessing of Congress.

With the coronavirus crisis, Powell has drawn from years of experience negotiating with lawmakers, nudging them toward his preferred policy outcomes while showing deference to their treasured oversight responsibilities.

Powell recently pledged to push the Fed’s crisis toolkit to its legal limits in an unprecedented bid to keep businesses, municipalities, financial markets and the broader economy afloat during the downturn. The Fed’s quick response and ample congressional backing won almost unanimous praise from economists and little resistance from lawmakers despite some concerns about the scope and terms of the bank’s emergency lending facilities.

“If you look at his calendar, he's spending just an immense amount of time with members of Congress — both parties,” said Sam Bell, policy director at Employ America, a nonprofit that advocates for policies to maximize employment.

“Maybe it's harder to criticize the Fed chair in striking terms if you've just gotten off the phone with him,” Bell added.

Lawmakers gave the Fed almost $500 billion to backstop up to $4 trillion in emergency loans with terms dictated by Powell and Treasury Secretary Steven Mnuchin. As the unemployment rate approaches levels not seen since the Great Depression, Congress has urged the Fed to move as quickly as possible while congressional Democrats and Republicans struggle to agree on another round of stimulus spending.

In less than two months, the central bank chief has marshaled the immense power of his position and broad political support behind a sprint to save the economy. Lawmakers and experts say Powell’s success comes from years of learning the lessons of his predecessors, building goodwill among his congressional overseers, and a resume well suited for the crisis at hand.

“For the Fed to act independent of the executive branch, it needs to ensure that the nation, as represented by the Congress, is comfortable with and supportive of those independent actions. If the Fed loses the confidence about the White House in the Congress, it's an institution at enormous peril,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics.

“He's making a strong case why they will work and I think that's why Congress is giving him a chance to let them work.”

Before the pandemic forced the country into lockdown, Powell was a frequent presence on Capitol Hill with a binder as thick as his security detail. The Fed chair has met or spoken over the phone with lawmakers far more frequently than his predecessors did, according to schedules released by the bank, cultivating a firewall political support that helped through his first major challenge.

Those close connections to lawmakers have not only helped Powell build a reservoir of political goodwill for the Fed, but may have also helped shape the bank and Congress’ response.

On Feb. 26, when the pandemic was starting to spread across the U.S., Powell’s schedule shows that he had a two-hour dinner with Rep. Denny Heck (D), whose state was hit hard early on. Powell’s dinner with Heck came a day after a top Centers for Disease Control and Prevention (CDC) official warned that a national coronavirus outbreak was “inevitable” and Larry Kudlow, the president’s top economic adviser, insisted the virus was “contained.”

A spokesman for Heck did not respond to requests for comment. 

As the crisis unfolded, Powell kept in frequent contact with Congress. He spent more than 3 hours on the phone with 12 different lawmakers the two days following the Fed’s March 15 rate cut, according to the most recent copy of Powell’s schedule.

Powell’s 10-minute call with Speaker Nancy Pelosi (D-Calif.) on March 17 helped fuel an early push from House Democrats for a sweeping stimulus package. Pelosi has frequently touted Powell’s request for Congress to “think big” while interest rates were low in the lead up to the passage of the record $2.2 trillion CARES Act, which gave the Fed billions in credit protection for two novel lending facilities to bolster small businesses and local governments.

Sen. Mark Warner (D-Va.), a senior member of the Senate Banking Committee, was one of the earliest supporters of what would become the Main Street Lending Program. In a March 17 statement, he called on the Fed and Treasury to open a facility ‘to provide companies affected by the virus with federally-guaranteed loans at low rates throughout the crisis.”

Warner’s call for a Fed small business lending program came five days after Powell and the senator spoke for 30 minutes over the phone, and was followed by another conversation on March 19. A Warner spokeswoman declined to comment.

Two days later, Senate Banking Committee Chairman Mike Crapo (R-Idaho) and Sen. Pat Toomey (R-Pa.) met with Mnuchin to discuss spending up to $500 billion to back up the Fed’s emergency lending facilities. The final number included in the CARES Act was $454 billion in credit protection for Fed emergency loans and $36 billion in industry-specific grants under Mnuchin’s direct control.

Toomey spoke briefly with Powell during the Fed chair’s blitz of post-rate-cut phone calls on March 17, and again for 15 minutes on March 19.

“Our office generally does not detail private conversations. However, during the COVID-19 crisis, Sen. Toomey and Chairman Powell have talked a few times regarding the overall state of economy and pertinent monetary and banking issues,” said a spokesman for Toomey, who was later named to the congressional panel overseeing the Fed and Treasury’s response.

Powell fielded an unknown number of unscheduled calls from government officials and staff from March 16 through the end of the month, blurring some of the details of his interactions with Congress during that time. Fed spokesmen did not respond to requests for comment.

The benefits of Powell’s solid relationship with lawmakers and credibility on both sides of the aisle have already paid dividends for the Fed chairman.

Republican lawmakers and the Trump administration have shown an increasing willingness to heed Powell’s escalating calls for another ambitious fiscal stimulus plan to complement the Fed’s efforts. While Powell’s warnings are among several factors fueling the new urgency, several GOP senators have cited the Fed chief in their move toward more spending.

Fed watchers attribute part of Powell’s success to the rare political space he occupies as a Republican who had at times been a political punching bag for Trump before the COVID-19 crisis. Powell’s call to “unleash the great fiscal power” of the U.S. to shield the economy during the pandemic appears to carry weight among his fellow fiscal hawks and others reluctant to add to the soaring federal debt.

“He is truly stepping into the breach and trying things that he thinks will be effective, and advancing policies that he believes are necessitated at the moment,” said Daniel Alpert, managing partner at New York investment firm Westwood Capital.

“He is a smart man who knows what he knows. He's not constrained by a school of economic thought and that's what we need,” Alpert added.

Unlike Powell’s predecessors since 1987, he does not hold a PhD in economics, but rather a bachelor of arts in politics from Princeton University and a juris doctor from Georgetown Law. And while other Fed governors spent their careers in academia or high-level economic advising positions, Powell’s resume is decidedly more private sector and political.

He was a lawyer and investment banker before joining the Treasury Department in 1990 under former President George H.W. Bush, and previously served as a staffer for congressional Republicans. He rose to undersecretary of domestic finance in 1992, where he learned first hand the difficulties of winning support for the administration’s economic agenda.

“Jay Powell is a very solid, very analytical, very thoughtful leader and in my view is very balanced in his approach to problem solving,” said Rep. French Hill (R-Ark.), who worked with Powell at the Treasury Department and now serves on the Congressional Oversight Committee for the Fed’s response.

Fed veterans also praise Powell’s willingness to marry his professional and academic background with the lessons imparted by his predecessors and crisis playbook they passed down to him. Some even said he’s outdone his former colleagues.

“The Fed could have done more after the Great Recession. The Fed is doing so much more right now,” said former Fed economist Claudia Sahm during a online seminar hosted this month by the Washington Center for Equitable Growth, where she serves as macroeconomic policy director.

For Powell’s first five years at the Fed, he worked under then-Chairman Ben Bernanke — who led the Fed’s response to the 2007-09 crisis — and Bernanke’s successor, Janet Yellen, who was charged with guiding the central bank from the near-zero rates that prevailed for years after the recession.

Julia Coronado, president of the research firm MacroPolicy Perspectives who served as a Fed economist from 1997 to 2005, said those experiences have helped influence Powell’s response to the crisis at hand.

“He was able to just learn a tremendous amount about how the institution works, about how the different tools worked, how the different banks work together,” she said. “So I think it was extremely helpful and has helped him in navigating the current crisis.”

The lessons learned, according to Coronado, are the importance of moving as quickly as possible to use the Fed’s emergency toolkit when economic threats emerge and communicating its mission in an approachable way.

“That's a big part of the Powell story,” she said.